Steffy: Airlines decry a tax even as they raise fares

Published 9:05 pm, Thursday, October 27, 2011

Airlines may be a victim of their own success.

"Success" isn't a term typically associated with U.S. air carriers. After all, they were the least profitable among the 53 industries ranked by Fortune magazine in 2009, and little has changed since then.

But they have been able to do something in this economy that few other companies have: raise prices without losing customers. Not only that, they also have increased fees for services that used to be included in ticket prices - checking luggage, changing itineraries, meals.

Airlines have raised prices twice in less than two weeks, bringing the number of fare hikes to at least nine so far this year. Yet airline traffic rose more than 3 percent during the year ended July 31, according to the U.S. Department of Transportation.

That hasn't gone unnoticed by the government. Desperate to raise revenue without the perception of a tax increase, the Obama administration has decided to piggyback on airlines' exploitation of its customers by proposing a suite of new taxes.

It's proposed a $100 tax on commercial carriers each time they take off and doubling the current security tax fee from a minimum of $2.50 to $5 for each one-way flight. The takeoff fees would go, at least in part, toward deficit reduction.

The airlines are understandably outraged. Taxes and fees already make up about 20 percent of their ticket prices.

"As the least profitable industry in the economy, it strikes us as quite amazing that they would select us to try to balance the budget," William Ris, senior vice president for government affairs at American Airlines, told me.

In discussing United's earnings Thursday, CEO Jeff Smisek told analysts and reporters that the new taxes would force airlines to raise fares and restrict service to smaller markets, where the prices would become too high to justify flights.

Yet as I listened to the complaints, I wondered how much of this airlines had brought on themselves. After all, it was the airlines that began resorting to an assortment of fees, nickel and diming passengers to the tune of billions of dollars a year. Now, the government seeks to use that same mechanism.

"No one seems to feel that there's a limit here to what the airline industry can absorb or pass on to customers," complained Ron Ricks, executive vice president for Southwest Airlines, which, by the way, doesn't charge baggage fees.

But why should they? The airlines have tacked on fee upon fee, and while passengers grumble, they pay them. As I wrote earlier this year, recent studies have even found that passengers are less upset by fees than they used to be.

In other words, the airlines may have provided the government with the perfect conduit for enacting a discretionary tax hike.

To add to their misery, beginning next year, carriers will be required to include all taxes and fees in their advertised fares.

The carriers contend that the higher taxes - as opposed to higher fares and fees - will drive passengers away. Nancy Van Duyne, United's vice president for congressional affairs, believes passengers see fees and taxes differently.

"The fees are an issue of choice," she said. "You can't duck a government tax."

But you can't duck fare hikes, either, unless you simply don't fly. So why would this price increase, be different from all the others?

Airlines seem to be saying that only they should be allowed to stick it to their passengers.

Maybe if they hadn't done such a good job of that, the government wouldn't be trying to get in on the act.